Monday, November 5, 2012

Atlas Shrugged Redux?

If timing is everything then what is contained in this blog is nothing, since our world will change tomorrow either toward a return to tried and failed policies that nearly brought the world to the financial abyss or to a continuation of policies that may enable us to continue on for a few more years. What lies beyond those years is anyone’s guess. My timing is admittedly lousy but the message is critical.

For those of you who are not familiar with Ayn Rand and her views of Laissez-faire (e.g. government is the demon that saps a society of economic incentives and thus becomes the prime-mover of downfall) allow me to provide a short primer.  Atlas Shrugged was considered by Rand as her magnum opus—her greatest achievement as a writer. The book was written in 1957 and portrays a dogmatically dystopian United States where many of society’s most productive citizens refuse to be exploited by increasing taxation and government regulations and go on strike. The strike attempted to illustrate that when those most responsible for the engine of economic growth are stifled, society will collapse.

The book was a huge success, championed the spirit of entrepreneurial creativity and depicted the government and the less fortunate into blood-sucking leaches who robbed the rightful wealthy of their hard earned rewards. Rand’s economic philosophies were so convincing that they guided the policies instituted by Alan Greenspan—Chairman of the Federal Reserve of the United States from 1987 to 2006. Greenspan was appointed by Ronald Reagan in August 1987, and was reappointed at successive four-year intervals until retiring on January 31, 2006—the second-longest tenure in that position. During his reign the wealth of the nation was becoming more and more polarized into the hands of a shrinking number of individuals, and less and less into the hands of those who enabled their prosperity.

On the surface Rand’s philosophy (and Greenspan’s policies) seemed to make good economic sense within a free enterprise system, except for one significant detail: GREED, which when left unchecked caused the near collapse of the world’s interconnected economies in the year following the end of Greenspan’s reign. The financial crisis of 2007–2008, was considered by many economists to be the worst financial crisis since the Great Depression of the 1930s. This crisis did not come about suddenly but rather was the result of Greenspan’s policies that encouraged imbalance. The crisis resulted in the threat of total collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world.

 In October, 2008 Greenspan testified before Congress and acknowledged that “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity (myself especially) are in a state of shocked disbelief…I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms.” Greenspan assumed the best of the captains of industry and discovered, quite to his surprise, that the nature of man, in an unenlightened state of mind favors their own self-interests instead of the “…self-interests of organizations…” The Buddha gave forewarning of this tendency 2,500 years ago but few then or now paid much attention. The heart of darkness is egotism, the perverse attitude of mind that says, “ME first, and none for YOU.”

We are slow learners and it seems necessary to arrive at the abyss before we let go of self-destructive, dug-in positions that are leading to the abyss. The failed philosophies of Rand have once again risen their ugly head and have been rephrased by Paul Ryan, Vice Presidential candidate for Mitt Romney, as “Makers and Takers” to express their economic and social philosophies. The notion is wildly popular amongst the Makers, who are persuaded they can generate wealth by themselves and owe nothing (or very little) to those who enabled them, and unpopular amongst those less fortunate. This point was challenged by Elizabeth Warren who said, “You built a factory out there—good for you! But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate ….Now look, you built a factory and turned it into something terrific, or a great idea—God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.” Warren’s point: Makers need those who enable their prosperity, and without them no prosperity is possible. Elizabeth Warren is an American bankruptcy law expert, Harvard Law School professor, and the Democratic nominee in the 2012 United States Senate election in Massachusetts.

Ryan acknowledges the influence of Rand. He said “I grew up reading Ayn Rand, and it taught me quite a bit about who I am and what my value systems are and what my beliefs are. It’s inspired me so much that it’s required reading in my office for all my interns and my staff.”

In an interview with the MacIver Institute in Wisconsin this summer, Ryan said: “We risk hitting a tipping point in our society where we have more takers than makers in society, where we will have turned our safety net into a hammock that lulls able bodied people into lives of dependency and complacency.”

In the interview, Ryan did not, as Romney did, equate people dependent on government with Obama voters. But he contended that it was President Obama’s intention to create more “takers,” or more dependency on government. Ryan said, “President Obama’s policies are feverishly putting more people into the column of being takers than makers, of being more dependent.”

This notion of self-interest was the theme of a 1987 movie called “Wall Street” starred by actor Michael Douglas, whose performance won him an Oscar for Best Actor. The main theme of the movie, fostered by the fictional character Gordon Gekko, was “Greed is Good.” Gekko then became a symbol of popular culture for unrestrained greed (with the signature line, “Greed, for lack of a better word, is good”), often in fields outside corporate finance. On September 25, 2008, Michael Douglas, acting as a UN ambassador for peace, was at the 2008 session of the United Nations General Assembly. Reporters sought to ask him off topic questions about Gordon Gekko. Douglas was asked whether he bore some responsibility for the behavior of the greed merchants who had brought the world to its knees thanks to his (aka Gekko’s) encouragement. Trying to return to topic, Douglas tried to suggest that the same level of passion Wall Street investors showed should also apply to getting rid of nuclear weapons.

Douglas was also asked to compare nuclear Armageddon with the “financial Armageddon on Wall Street.” After one reporter inquired, “Are you saying, Gordon, that greed is not good?” Douglas stated, “I’m not saying that. And my name is not Gordon. It’s a character I played 20 years ago.” Nevertheless Douglas/Gekko became a cultural icon that fueled excess and greed. On October 8, 2008, Gekko was referenced in a speech by the Australian Prime Minister Kevin Rudd in his speech “The Children of Gordon Gekko” concerning the Financial crisis of 2007-2010. Rudd stated, “It is perhaps time now to admit that we did not learn the full lessons of the greed-is-good ideology. And today we are still cleaning up the mess of the 21st-century children of Gordon Gekko.”

In the words of TV personality, Dr. Phil, when confronting the failed policies of relationships, “How’s that working out?” The philosophical divide between these forces is widening and it is becoming more and more evident that the wealth of our nation is increasingly concentrated at the top, and decimating the long held tax base of a vanishing Middle Class. According to a recent study, 4 years ago the share of household income held by the top 10% of the population stood at 49.7%, higher than any time since 1917 and even surpassing 1928, the peak of the stock market bubble just preceding the Great Depression. The gap between the super wealthy and the burgeoning poor is at an all time high. This disparity, as measured and reported by the Gini coefficient, shows that the US is third highest among measured nations, exceeded only by Hong Kong and Singapore. Further evidence pointing to the shrinking Middle Class has been reported by Yahoo Finance which said (among various things) that 66% of income growth between 2001 and 2007 came from the top 1% of Americans, over 1.4 million Americans filed for personal bankruptcy in 2009 (representing a 32% increase from the previous year), the top 1% of U.S. households own nearly twice as much of America’s corporate wealth as they did 15 years ago, and despite the economic crisis of the past few years, the number of millionaires rose 16% in 2009.

This is not unexpected when you consider the following—In 1950 the ratio of the average executive’s paycheck compared to the average worker’s paycheck stood at 30 to 1. Since 2000 that ratio has exploded to 300-500 to 1. The rich are getting richer, the poor are getting poorer and the Middle Class is gradually sinking into the abyss.

Those who are students of world history have noted that no civilization has lasted long once the wealth of a nation gets to a tipping point of concentration. The question is, how near are we to that point now, and what, if anything we will do to alter this tidal force of economic imbalance?

In his inaugural speech, President Obama said, “The nation cannot prosper long when it favors only the prosperous.” But that’s exactly what has happened, at the time of his speech as bankers made huge profits and gotten scandalous bonuses while real unemployment reached towards 15 percent.
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